WSJ's The Experts

We’re Incentivizing Electric Cars All Wrong

A small but growing number of public entities recognize they need to take a smarter, more assertive approach.

Par James Allen

First published on juillet 20, 2018
min


This article originally appeared on WSJ's The Experts. Electric vehicles promise to advance cities’ ambitions for cheaper, safer and greener mobility. Even without significant changes in the sources of electricity generation—primarily coal, natural gas and renewables—EVs can still reduce carbon dioxide emissions by 60% compared with internal combustion engines. In the U.S., more than 20% of emissions come from light-duty vehicles, so encouraging EVs could improve air quality and the health of urban residents. As battery prices fall, moreover, EVs will soon provide cheaper mobility for people. Factoring in lower maintenance and operating costs, the total cost of ownership for EVs—that is, how much owners spend during a vehicle’s useful life—should reach parity with internal combustion vehicles over the next five years and continue to decrease. But there’s a huge problem with the current economic incentives for electrification: Most programs encourage the purchase of privately owned EVs and would fail to realize the greatest potential benefits. Private cars and trucks spend 95% of their time parked, limiting the volume of miles actually electrified. Current programs also tend to deploy charging infrastructure based on the patterns of privately owned vehicles. As the number of private EVs grows, most will be charging during peak demand times, such as weekday evenings. Failure to integrate intelligently with the power grid can limit the business case for the charging operator, and could lead to grid instability if too many EVs charge at the same time. A small but growing number of public entities recognize they need to take a smarter, more assertive approach, one detailed in Bain & Co.’s recent analysis with the World Economic Forum’s Future of Electricity initiative. How? By encouraging electrification of high-use vehicles, including fleets of shared or autonomous vehicles–taxis, delivery trucks, buses and corporate fleets–to increase the volume of miles electrified. This approach includes charging stations that integrate with the electricity grid to facilitate smart charging at the best times. A fleet-focused approach could bring the share of electrified miles up to 35% in some U.S. cities by 2030, Bain estimates, even while 85% of the vehicle stock would still have internal combustion engines. This compares with less than 10% of miles being electrified if public policies keep giving higher priority to personal-use EVs. EV fleets run at higher utilization rates than personal vehicles, substantially reducing the cost of mobility and congestion. Combined with more renewable generation, they will charge in hubs at optimal times, sometimes in the middle of the day, when wind and solar generation is most productive, sometimes in the middle of the night, when rates are lowest. Smart charging of vehicles would lower the cost of serving peak electric loads. In California, for instance, where cities increasingly rely on solar generation, there could be as many as 4 million EVs on the roads by 2030. In that scenario, charging at optimal times rather than at peak demand would reduce wholesale energy costs by $700 million by 2030. Some public and private decision makers have started to encourage electrifying public and private fleets, including mobility-as-a-service, police cars, taxis and college fleets. China has prioritized electrification of city public transport systems, and its stock of electric buses already exceeds 380,000 units. Massachusetts gives monetary incentives to universities to electrify their fleets and deploy charging stations. London now requires all new black cabs to be electric or emission free by 2018. And Oslo plans to have all public vehicles using electricity by 2020. Of course, strategies need to be customized to a city’s situation. The right integration of energy and mobility systems will vary based on the energy-generation mix, the shape of the daily electric load curve, the density of the city, current commuting patterns and public transit infrastructure, among other factors. In Paris, for example, the public transit system accommodates half of all commutes, so it makes sense to invest in electrifying and connecting EVs to public transit hubs. Contrast this with the San Francisco Bay Area, where most commuters still ride in private vehicles—a pattern that calls for different strategies. Ultimately, public officials control and regulate urban mobility. Working with mobility providers, automotive companies and electric utilities, urban and state officials bear the responsibility for catalyzing a fleet-first approach. James Allen is co-leader of the global strategy practice at Bain & Co. and co-author of The Founder’s Mentality.

This article originally appeared on WSJ's The Experts.

Electric vehicles promise to advance cities’ ambitions for cheaper, safer and greener mobility. Even without significant changes in the sources of electricity generation—primarily coal, natural gas and renewables—EVs can still reduce carbon dioxide emissions by 60% compared with internal combustion engines. In the U.S., more than 20% of emissions come from light-duty vehicles, so encouraging EVs could improve air quality and the health of urban residents.

As battery prices fall, moreover, EVs will soon provide cheaper mobility for people. Factoring in lower maintenance and operating costs, the total cost of ownership for EVs—that is, how much owners spend during a vehicle’s useful life—should reach parity with internal combustion vehicles over the next five years and continue to decrease.

But there’s a huge problem with the current economic incentives for electrification: Most programs encourage the purchase of privately owned EVs and would fail to realize the greatest potential benefits. Private cars and trucks spend 95% of their time parked, limiting the volume of miles actually electrified.

Current programs also tend to deploy charging infrastructure based on the patterns of privately owned vehicles. As the number of private EVs grows, most will be charging during peak demand times, such as weekday evenings. Failure to integrate intelligently with the power grid can limit the business case for the charging operator, and could lead to grid instability if too many EVs charge at the same time.

A small but growing number of public entities recognize they need to take a smarter, more assertive approach, one detailed in Bain & Co.’s recent analysis with the World Economic Forum’s Future of Electricity initiative.

How? By encouraging electrification of high-use vehicles, including fleets of shared or autonomous vehicles–taxis, delivery trucks, buses and corporate fleets–to increase the volume of miles electrified. This approach includes charging stations that integrate with the electricity grid to facilitate smart charging at the best times. A fleet-focused approach could bring the share of electrified miles up to 35% in some U.S. cities by 2030, Bain estimates, even while 85% of the vehicle stock would still have internal combustion engines. This compares with less than 10% of miles being electrified if public policies keep giving higher priority to personal-use EVs.

EV fleets run at higher utilization rates than personal vehicles, substantially reducing the cost of mobility and congestion. Combined with more renewable generation, they will charge in hubs at optimal times, sometimes in the middle of the day, when wind and solar generation is most productive, sometimes in the middle of the night, when rates are lowest.

Smart charging of vehicles would lower the cost of serving peak electric loads. In California, for instance, where cities increasingly rely on solar generation, there could be as many as 4 million EVs on the roads by 2030. In that scenario, charging at optimal times rather than at peak demand would reduce wholesale energy costs by $700 million by 2030.

Some public and private decision makers have started to encourage electrifying public and private fleets, including mobility-as-a-service, police cars, taxis and college fleets. China has prioritized electrification of city public transport systems, and its stock of electric buses already exceeds 380,000 units. Massachusetts gives monetary incentives to universities to electrify their fleets and deploy charging stations. London now requires all new black cabs to be electric or emission free by 2018. And Oslo plans to have all public vehicles using electricity by 2020.

Of course, strategies need to be customized to a city’s situation. The right integration of energy and mobility systems will vary based on the energy-generation mix, the shape of the daily electric load curve, the density of the city, current commuting patterns and public transit infrastructure, among other factors.

In Paris, for example, the public transit system accommodates half of all commutes, so it makes sense to invest in electrifying and connecting EVs to public transit hubs. Contrast this with the San Francisco Bay Area, where most commuters still ride in private vehicles—a pattern that calls for different strategies.

Ultimately, public officials control and regulate urban mobility. Working with mobility providers, automotive companies and electric utilities, urban and state officials bear the responsibility for catalyzing a fleet-first approach.

James Allen is co-leader of the global strategy practice at Bain & Co. and co-author of The Founder’s Mentality.